China’s industrial profits growth slows, putting pressure on policymakers
BEIJING, Nov 27 (Reuters) – Profits at China’s industrial firms extended gains for a third month in October, but at a slower pace, raising concerns about the need for further policy support from Beijing to boost the world’s second-largest economy.
The 2.7% year-on-year rise in profits narrowed back to single digits, following an 11.9% increase in September and a 17.2% gain in August, according to data from the National Bureau of Statistics (NBS). This puts pressure on authorities to extend further assistance to manufacturers as soft global demand continues to trouble policymakers heading into 2024.
For the first 10 months of 2023, profits slid 7.8% from a year earlier, narrowing from a 9% decline in the first nine months, the NBS data showed on Monday.
China’s economy has struggled to mount a strong post-COVID recovery as distress in the housing market, local government debt risks, slow global growth, and geopolitical tensions have dented momentum.
“A flurry of policy support measures has had only a modest effect, raising pressure on authorities to roll out more stimulus,” Reuters Graphics reported.
“Three consecutive months of positive profit growth suggest that the worst times, when profitability was squeezed by high input costs, overcapacity and soft demand, are over,” said Xu Tianchen, senior economist at the Economist Intelligence Unit (EIU).
“However, the volatility of profits is a sign enterprises remain highly sensitive to input costs,” he added. “The sharp slowdown of year-on-year profit growth was partly driven by a rebound in energy prices.”
The NBS said authorities should “focus on expanding domestic demand and inspiring businesses,” in a nod to factories’ trade challenges.
Data for October has been mixed. Both new export and import orders shrank for an eighth consecutive month in October, according to the official purchasing managers’ index (PMI). However, industrial output grew 4.6% in October, compared with the same period a year earlier, buoyed by strong autos and restaurant sales.
Goldman Sachs wrote in a note that “the divergence in profits across various sectors and firms remained significant”.
Profits at furniture firms fell 11.8% over the first 10 months of 2023 year-on-year, for example, while electronics manufacturers saw profits jump 20.8% over the same period.
“Early signs of a comeback in the global electronics cycle will work in Chinese manufacturers’ favor,” said the EIU’s Xu, who warned of downside across the sector and overcapacity across electric vehicles, lithium batteries and solar cells in 2024.
LONGi Green Energy Technology Co (601012.SS), a major domestic solar energy manufacturer, saw its third-quarter net profit plummet 44.1% to 2.5 billion yuan ($346.7 million), hit by macroeconomic headwinds and a supply glut.
On Monday, China’s central bank and other authorities called for more measures to strengthen financial support for private companies, including allowing increased issuance of loans, bonds, and shares.
The central bank governor earlier this month said: “transforming the economic growth mode is more important than pursuing a high growth rate,” suggesting an urgent need for longer-term structural reforms as investment-led growth loses steam.
China’s blue-chip CSI300 index fell 1.21% after the data, while Hong Kong’s Hang Seng lost 1.07%.
Profits at state-owned firms declined 9.9% in the first 10 months, foreign firms recorded a 10.2% slide, and private-sector companies saw profits down 1.9%, according to a breakdown of the NBS data.
Industrial profits data covers firms with annual revenues of at least 20 million yuan ($2.74 million) from their main operations.
($1 = 7.2922 Chinese yuan)
Reporting by Joe Cash, Liz Lee, and Qiaoyi Li. Editing by Sam Holmes
(Reporting by Joe Cash; Editing by Sam Holmes)